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Dell Computer Corp. manufactures, sells, and services personal computers. The company markets its computers directly to its customers and builds computers after receiving a customer order. This build-to-order model enables Dell to have much smaller investment in working capital than its competitors. It also enables Dell to more fully enjoy the benefits of reduction in component prices and to introduce new products more quickly. Dell has grown quickly and has been able to finance that growth internally by its efficient use of working capital and its profitability. This case highlights the importance of working capital management in a rapidly growing firm.

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Gives students the opportunity to explore how a company uses the Capital Asset Pricing Model (CAPM) to compute the cost of capital for each of its divisions. The use of Weighted Average Cost of Capital (WACC) formula and the mechanics of applying it are stressed.

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Ari Medoff's (HBS '11) goal was to control his own professional destiny by owning his own company. His search identified a suitable acquisition in Home Nursing of North Carolina and he had negotiated a purchase price of $3.5 million, or 4.2x trailing EBITDA. Medoff had completed his due diligence, arranged financing, and completed the legal documents required to complete the acquisition and anticipated closing the transaction in just a few weeks. But then the sellers surprisingly asked to renegotiate the terms of the note they had agreed to early in the acquisition process. Medoff must decide whether to re-negotiate the debt or abandon the transaction.

learning objective:

The case provides the opportunity for students to explore the process of acquiring a small company. The case emphasizes the negotiation process and carefully follows the steps required to complete the acquisition. This process is especially difficult when buying a small firm because the sale will generally be the seller's first transaction. Key terms are described in the case and students can analyze the economic rationale for them. The case also examines the role of seller debt both as a source of financing and as a mechanism for binding the sellers to the success of the company after the transaction is completed.

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The owner and CEO of Adaptive Engineering was facing an important decision: should he focus on rebuilding its core professional services business which had generated significant revenue and cash flow over the past several years, or should he focus on developing and marketing licensed software which had been under development for several years but had yet to become profitable.

learning objective:

The case gives students the opportunity to explore the business consequences of the scarcity of capital and management in smaller businesses. Additionally, the costs and benefits of a distributed business model that minimized overhead costs are examined along with the consequences to a business of having its leader become unavailable because of an illness.

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Lind Equipment failed to meet its loan covenants with its senior bank lender in the summer of 2008, just six months after it was acquired. While the senior bank debt comprised only 6% of the capital used in the acquisition and was fully secured, it exercised its right to stop payments to Lind's subordinated lender that funded about 40% of the acquisition, pushing that debt into default as well. These financial problems were the result of declining revenues and profits at Lind as exchange rates and the impact of the Great Recession took its toll on the firm. Without a quick solution, Lind could be pushed into bankruptcy.

learning objective:

The case gives students the opportunity to explore how the great recession affected small businesses. Especially relevant is how the financial structure used in an acquisition can make it difficult to respond to challenging business conditions after the acquisition, putting the core business and the anticipated opportunities at risk.

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Nashton Partners was a search fund founded by two HBS MBA's that raised $500,000 to finance a search for a company that they could purchase and then run for the next five to ten years. The case examines the search fund structure, the two-year search, and two potential acquisitions.

learning objective:

This case gives students the opportunity to explore search funds, including their structure, operation and target acquisition process.

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Talismark, which helped its customers manage their waste, was considering re-engineering its business fundamentals to dramatically increase profitability by changing its sales and information processes. Implementing the changes would be expensive and would interrupt its new customer acquisition efforts, and it would be 18 months until the company could begin to acquire new business. The case explores the rationale and consequences of re-engineering a business.

learning objective:

Students explore and evaluate the decision to re-engineer a growing business.

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